All That Glitters is Gold and Bitcoin – Are Central Banks Buying Both?

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Gold is at a six-year high ($1,431), bitcoin at a 15-month high ($11,385).

The backdrop to the rise of both is the rising geopolitical tensions and the cheap money policies of central banks that mean you actually pay to lend money to governments these days.

Bitcoin: a 21st century safe haven asset

On the bitcoin side of the ledger there is the Facebook effect, among other things, as the realisation builds that regardless of what happens with the project, it has let the cat out of the bag. Where Facebook treads many other corporation will tread too.

On the gold side there is the weakening of the dollar of late as investors look to the US Federal Reserve cutting already historically low interest rates.

The gold price has an inverse relationship to the price of the US dollar.

When the dollar falls the price of gold, which is priced in dollars, rises as you can buy more with your non-dollar money which helps booost demand.

But after cancelling those two factors (Facebook and the dollar exchange rate) out of the equation, we are left with the conclusion that the price of the two is related, and the common denominator is geopolitical and economic uncertainty.

Having said that, there is one other key difference between the two commodities – bitcoin has outperformed gold by a considerable margin.

Investors in gold have seen an 11% gain since 1 January 2019, compared to 212% for bitcoin.

Gold bugs push back against bitcoin comparisons

Gold bugs are pushing back though, by dismissing the notion of a digital gold competitor.

Coming to bitcoin’s defence, as always, is Max Keiser who
has long championed the digital currency.

Chairman of SchiffGold, Peter Schiff, says it’s wrong to liken bitcoin to the gold his company sells.

“Both gold and Bitcoin prices have risen recently, causing many to erroneously conclude that the two are rising for the same reason. But stock and bond prices are also rising. Bitcoin and stocks are rising as speculative assets, while gold and bonds are rising as safe havens,” says Schiff.